Islamic Banking Conventional Banking
1. The functions and operating modes of
Islamic banks are based on the principles of
Islamic Shariah.
2. In contrast, it promotes risk sharing between
provider of capital (investor) and the user of
funds (entrepreneur).
3. It also aims at maximizing profit but subject to
Shariah restrictions.
4. In the modern Islamic banking system, it
has become one of the service-oriented
functions of the Islamic banks to be a Zakat
Collection Centre and they also pay out
their Zakat
5. Participation in partnership business is the
fundamental function of the Islamic banks. So we
have to understand our customer's business very
well.
6. The Islamic banks have no provision to charge
any extra money from the defaulters. Only small
amount of compensation and these proceeds is
given to charity. Rebates are given for early
settlement at the Bank's discretion.
7. It gives due importance to the public interest.
Its ultimate aim is to ensure growth with equity.
8. For the Islamic banks, it must be based on a
Shariah approved underlying transaction.
9. Since it shares profit and loss, the Islamic banks
pay greater attention to developing project
appraisal and evaluations.
10. The Islamic banks, on the other hand, give
greater emphasis on the viability of the projects.
11. The status of Islamic bank in relation to its
clients is that of partners, investors and trader,
buyer and seller.
12. Islamic bank can only guarantee deposits for
deposit account, which is based on the principle
of al-wadiah, thus the depositors are guaranteed
repayment of their funds, however if the account
is based on the mudarabah concept, client have
to share in a loss position..
Source:[ CITATION Cha15 \l 1033 ]
1. The functions and operating modes of
conventional banks are based on fully manmade
principles.
2. The investor is assured of a predetermined
rate of interest.
3. It aims at maximizing profit without any
restriction.
4. It does not deal with Zakat.
5. Lending money and getting it back with
compounding interest is the fundamental
function of the conventional banks.
6. It can charge additional money (penalty and
compounded interest) in case of defaulters.
7. Very often it results in the bank's own interest
becoming prominent. It makes no effort to
ensure growth with equity.
8. For interest-based commercial banks,
borrowing from the money market is relatively
easier.
9. Since income from the advances is fixed, it
gives little importance to developing expertise in
project appraisal and evaluations.
10. The conventional banks give greater emphasis
on credit-worthiness of the clients.
11. The status of a conventional bank, in relation
to its clients, is that of creditor and debtors.
12. A conventional bank has to guarantee all its
deposits.